Commercial Division Blog

Posted: January 24, 2015 / Categories Commercial, Confict of Laws

Court Enforces Choice of Law Provision Notwithstanding Dispute's Lack of Connection to New York

On January 9, 2015, Justice Bransten of the New York County Commercial Division issued a decision in Marsh USA Inc. v. Doerfler, 2015 NY Slip Op 50020(U), holding that, as written in the parties' agreement, a New York choice of law provision precluded an argument that New York law should not be applied because the parties and the agreement had no reasonable relationship to the state.

The contract at issue in Marsh USA Inc. stated that it "shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflict of laws provisions." (Emphasis added). Justice Bransten found that the exclusion of New York's "conflict of laws provisions" from the choice of law clause foreclosed any argument that New York law should not apply because of insufficient connections to the forum – which is essentially a conflict of laws argument. The Court explained:

It is well-settled that a basic precept of contract interpretation is that agreements should be construed to effectuate the parties' intent. As a result, New York courts are willing to enforce parties' choice of law provisions. Such provisions are considered prima facie valid. To invalidate such a provision, a party "must show that its enforcement would be unreasonable, unjust, or would contravene public policy, or that the clause is invalid because of fraud or overreaching.

Defendants' principal arguments against enforcing the choice of law provision in the NSA are that the parties and their agreement bear no reasonable relationship to New York and that the application of New York law would be contrary to the policy of Oregon. However, the second phrase of the NSA's choice of law provision—"without regard to its conflict of laws provisions"—forecloses such an inquiry. The Second Circuit interpreted nearly identical language, and concluded that "New York's conflict of law rule regarding trusts [which would have instead called for the application of Cayman Islands law] is not relevant to this case because paragraph 38 clearly states that in interpreting the Settlement Agreement, New York internal' law applies without regard to conflicts of law.'" Archer Invs. S.a.r.l v. Local 282 Welfare Trust Fund, 462 F. App'x 122, 123-24 (2d Cir. 2012).

Here, as in Archer, Defendants' arguments in favor of applying Oregon law would correctly be characterized as "conflict of laws" arguments and therefore may not be considered according to the plain language of the NSA, which requires the application of New York law to the governance and construing of the NSA, without regard to New York's conflict of laws provisions. Accordingly, the choice of law provision must be enforced, such that New York (not Oregon) law governs the parties' dispute.

(Some citations omitted).